A successful life filled with a six-digit bank A/c, 99.99 percentile, and A+ grades. Then it all begins with particularly one stereotype, which is premier league colleges. Preparation of SAT and CAT is to pursue higher studies from top-B schools like IIT, NIT, and IIM. Everyone wants to study abroad, high-quality education at an enormous cost! But how can a person afford lakhs and crores, all at once, for providing quality education? What should a person do in such a case? According to the general opinion, the person should go for an education loan.
what is education loan in india?
Every parent dreams of watching their child turning into a renowned scholar. And we know, a scholar has a pearl of wisdom that develops from experience and knowledge. We know that knowledge comes from studies and exposure. Parents strive to provide their children with the best of the resources, consisting of a quality education that holds the primary importance in nurturing an educated person's mind. But pursuing studies from a reputed college, or a university has now become part and parcel of life.
Let's get statistical
According to studies, the cost of education is increasing at an average of 15% p.a. The tentative cost of an MBA is up from Rs.25 lakh in 15 years. So, a couple saves Rs. 4,955 per month for 15 years, at an average rate of 12%, they will study. The total number of active loan accounts fell by 6.2 lakh in the past four years, the average loan amount is sanctioned, and it varies from 5.3 lakhs to 10 lakhs and more.
Students receive education loans via banks, financial institutions, or schemes that the government has started to increase the literacy rate of our country. Loans sanctioned by financial entities cover a particular amount of tuition fees, and that is 90%. Another data from NHFDC suggests that out of 8887.90 lakhs sanctioned, the amount disbursed was 8815.17 lakhs in the year 2019. Now, we are aware of the statistical terms related to education loan, let us explore it in the section stated below.
Education loan for Higher Studies is a Cumbersome Process
An education loan is offered to students who want to pursue study in India or pursue higher education overseas. The maximum amount offered for studies in India and overseas deviates from one bank to another maximum loan to be sanctioned and their loan targets to be fulfilled and met. It covers basic tuition fees, other miscellaneous charges, and the ones mentioned in the fee structure document as provided by the institute.
A student is a primary borrower. Anyone apart from the student, such as a parent, spouse, or sibling, can be the co-applicant or the guarantor. Courses that a bank can sanction for the loan are full-time, part-time, vocational, graduation, and post-graduation in the fields of engineering, management, medical, hotel management, and architecture.
To be eligible for the loan, a candidate should be a citizen of Indian origin, be admitted into a recognized educational institution by a competent authority in India or abroad, and after this step, fill out an e-form by the government and wait for the approval of the loan.
The candidate must have completed his or her higher secondary level schooling, at least. After approval, one must attach the approved e-form in the printed format along with the application for the loan, the pan card, Aadhar card, and other required documents. The necessary list of documents to apply for the education loan is-
Proof of Identity, Admission, Address along with the Statement of cost of study, and passport-size photographs. Even a few banks offer the loan before one has secured admission into the university. The financial entities require additional documents such as admission letter of the institution, fee structure, Class X, XII, and graduation (if applying for a postgraduate course) mark sheets. Income documents such as salary slips or income-tax returns (ITR) of the co-applicant are also required along with the CIBIL score.
According to the Bank of India (RBI) guidelines, there are no restrictions on the upper age limit, but some banks may have it like 35 years as the upper age limit. For loan amount being more than 7.5 lakhs, collateral as a third-party guarantee of security against the education loan. If the disbursement amount is less then 4 lakh, then no security as collateral against the loan is charged.
Once the loan is disbursed, the amount is directly sent to the university or the college according to the fee structure, as mentioned in the loan document. Banks use MCLR plus the floating interest rate to be charged either before the completion, of course, or after the end. The least interest rate charged is by SBI bank, which was said to be 11% for boys and 10% for girls. Marginal Cost of Funds based Lending Rate is revised as 7.25% for the fiscal year 2020.
If the student gives the consent for charging interest before the completion of course, it is deducted from the mentioned account in form EMI installments, which is equal to the no. of months in terms of duration of the course, which has been applied and mentioned in the loan application initially. However, the total loan amount disbursed has grown by 34.22%, indicating that banks are keen on approving higher ticket-sized loans. Benefits under the Income-tax Act Section 80E of the I-T Act allows for a deduction on the interest paid on the repayment.
This deduction is only allowed for the individuals paying interest on the loan for themselves, their spouses, or children or for the student to whom you're a legal guardian. Deduction of the entire interest amount can be paid from your taxable income. It is allowed for a time frame of 8 years, but the principal amount does not qualify for any tax deduction. Also, keep an eye for the processing fee, prepayment fee, an extra charge on late payment of EMI and other bank-related charges involved in this loan process.
However, the process is cumbersome and lengthy; one has to wait for a month or more, show up whenever the bank is called upon, with all the handy documents available. Education loan approval might seem hard to endure, but it is worth the efforts, and as everything has two sides of a coin, here, the successful placement for paying the educational loan weighs more!
As everything has two sides of the same coin, the same goes for the education loans. Education loans are not hassle-free; it might take months or more, and even after all the efforts and chaos, your loan might not be approved. Which again brings me to the next thought-provoking question "If education is not biased, then why education loan is? CA, CS, CMA courses, for such professional courses no loan is granted due to non-guarantee of course completion, but the cost for pursuing these courses is no less than studying in an MBA college!",
Education loan procedures may vary when we apply in private and in government banks. A high network individual can use his power authority in private banks, but the same is not the case with government banks. With the excess of power and networking comes red-tapism and bureaucracy. It is up to us whether we want to see the side of the coin where energy can be misused or the other hand where the deserving candidates get it sanctioned.